What Is an Arbitration Clause — And Why You Should Care
It's one of the most common clauses in contracts today — and one of the most misunderstood. Here's the plain-English version.
The plain-English version
An arbitration clause is a contract provision that says: "If we have a dispute, you agree to resolve it through private arbitration instead of going to court."
That sounds neutral. It isn't.
What you give up
Right to a jury trial
Arbitration decisions are made by one or three private arbitrators — not your peers.
Right to appeal
Arbitration decisions are nearly impossible to overturn. Courts almost never reverse them.
Right to discovery
In court, you can compel the company to hand over documents and emails. In arbitration, your discovery rights are limited.
Class action rights
Most arbitration clauses include class action waivers — preventing you from joining others with the same claim against the same company.
Public record
Court proceedings are public. Arbitration is private. The company can keep outcomes secret.
Why companies use them
Arbitrators are often chosen from a small pool of professionals — many of whom are hired repeatedly by the same corporations. Studies have shown that in repeat-player arbitration, arbitrators who regularly work with a company rule in that company's favor at significantly higher rates.
Class action waivers are the other major reason. Without the ability to band together, individual claims are often too small to be worth pursuing. Arbitration clauses effectively prevent employees and consumers from holding companies accountable at scale.
How to spot one
Arbitration clauses can appear in employment contracts, service agreements, app terms of service, consumer contracts, and more. Look for language like:
"Any dispute arising from this agreement shall be resolved through binding arbitration..."
"The parties agree to waive any right to a jury trial..."
"Claims shall be adjudicated on an individual basis and not on a class or collective action basis..."
What you can do
Try to negotiate it out entirely
For employment contracts, simply ask to remove the arbitration clause. Some employers will — especially for senior roles. Frame it as a mutual preference for traditional dispute resolution.
Add carve-outs for specific claim types
Even if you can't remove arbitration entirely, push to carve out claims involving discrimination, harassment, wage theft, or whistleblower protection. Courts have been receptive to these carve-outs.
Negotiate arbitrator selection language
If arbitration stays in, add language requiring a neutral arbitrator selection process — such as a mutual agreement from a list of AAA or JAMS arbitrators.
Understand your state protections
Some states limit arbitration enforcement for certain claims. California, for example, has specific restrictions on mandatory arbitration for employment claims.
The replacement language to propose
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MyContractDecoder flags arbitration clauses, class action waivers, and other rights-limiting provisions automatically — and gives you the exact replacement language to propose. $49 for a full report.
Analyze my contract — $49Not legal advice. Educational purposes only. Consult a licensed attorney for advice specific to your situation.